Expected Power-Plant Retirement To Reduce Glut - Survey
By MARK GOLDEN
Of DOW JONES NEWSWIRES
NEW YORK -- The glut of electric generators in the U.S. may not be as severe or quite as long-lasting as previously thought, according to a recent survey by the Electric Power Research Institute.
The boom of construction of new, highly efficient gas-fired power plants is hastening the retirement of old gas- and oil-fired power plants, EPRI found out. In addition, the cancellation of new projects has finally taken hold in response to low wholesale power prices, although the reaction may have taken longer than many expected.
The electric industry always has maintained a "reserve margin," which is capacity in excess of expected peak demand so that extremely hot weather, simultaneous major outages, or transmission constraints don't result in blackouts. EPRI, in its assessment, forecast that the U.S. average reserve margin will peak at 32% around 2004, down from its prior estimate of a 41% peak around 2005.
"Only two regions now fall into the 'overbuilt' category - greater than 40% reserve margins, with the majority falling into the 'robust' range - 20%-40%," the survey said.
The two regions still in the overbuilt category are those of utilities Entergy (ETR) and Southern Co. (SO). Only the upper midwest grid known as the Mid-continent Area Power Pool is at risk for too little capacity. EPRI's outlooks for California, Florida, New York, Virginia and the Carolinas also are highly uncertain, depending on how many planned generators get built and how much the local economies grow.
"One of the greatest shifts is in the outlook for Texas," said Jeremy Platt, a lead EPRI researcher. "Having much oil-gas steam capacity vulnerable to retirement, the region could require new capacity beginning in 2005."
Project cancellations in California mean a much lower reserve-margin outlook, though sufficient capacity will likely be built to avoid actual shortages, according to the survey.
This is the first time EPRI has done a comprehensive analysis of power-plant retirements. By 2010, the firm expects utilities to retire some 45,000 megawatts of oil- and gas-fired generators, and 15,000 MW of coal-fired plants. This compares with total U.S. generating capacity of about 900,000 MW.
About 79,000 MW of announced new plants likely will be withdrawn or canceled, EPRI said. But the country's fleet of nuclear power plants will be maintained, despite expectations of nuclear plant retirements just a few years ago.
For the holders of stocks and bonds of independent power producers such as Calpine Corp. (CPN) and Mirant Inc. (MIR), the future isn't rosy - it is just not quite as bleak.
"While most regions are still anticipated to enter a period of overbuilding, greater reliability and reduced profitability, several regions will require new capacity sooner than outlined in the previous report," EPRI said.
Retiring an old plant takes years, Platt said in an interview. Regional grid operators and utility regulators must approve the move, other technical issues are involved, and it can make sense economically to mothball a plant for a couple years before actually disassembling it.
"We've gotten some interest from our clients as to what's involved, an interest in developing a transition asset-management strategy. That's new," said Platt.
As for new plants, many observers wrongly forecasted that the crash in electricity prices would have put a halt on construction last year.
"The fact is, it hasn't happened that way. You continue to hear announcements of new plants," Platt said.
The total buildup of about 315,000 MW expected a year ago now has declined by just 20,000 MW if only formal announcements of cancellations are considered.
In many cases, developers already had spent as much as 80% of the capital necessary to build a plant, so they pressed ahead, despite extremely low power prices, Platt said. "And, in some places, the plants are needed or will be soon," he added.
-By Mark Golden, Dow Jones Newswires; 201-938-4604; mark.golden@dowjones.com |
